Gurfein v. Ameritrade

In this class action alleging violations of state contract law, defendant moves to dismiss the Third Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(6).

BACKGROUND

The allegations*fn1 arise from frustrations in the execution of plaintiff's orders for sales of options on the American Stock Exchange ("AMEX"). On December 6, 2002, plaintiff, Hadassah Gurfein ("Gurfein") placed a limit-order to Ameritrade to sell fifty Forest Labs December 100 put contracts at the electronically displayed price, yet cancelled it when it had not been executed in less than three minutes. She attempted several more times to sell her shares at prices at or below the electronically

displayed bid, yet each time the order was not executed and Gurfein cancelled it. Ameritrade routed Gurfein's orders only to specialists at the AMEX, and never to the Chicago Board Options Exchange or the Philadelphia Stock Exchange where Forest Labs equity options were also listed.

On January 26, 2006, the Court dismissed plaintiff's initial claim of federal securities law violations. Plaintiff filed a Second Amended Complaint claiming breach of contract against Ameritrade for failing to execute her options orders instantaneously, which the Court dismissed on October 13, 2006 for failure to state a claim on which relief could be granted. Plaintiff filed this Third Amended Complaint, revising her breach of contract claim to allege that Ameritrade failed to route her orders to multiple market centers and failed to execute her orders at the quoted price, the "best" price, or with the best execution.

Ameritrade moves pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the Third Amended Complaint for failure to state a claim.

DISCUSSION

Under Fed. R. Civ. P. 12(b)(6), on a motion to dismiss a complaint for failure to state a claim upon which relief may be granted, a court must accept the factual allegations of the complaint as true, and draw all inferences in favor of the plaintiff. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993). "Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true." Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007) (internal citations omitted). The court may consider exhibits annexed to the complaint or incorporated in it by reference. Brass v. American Film Technologies, Inc., 987 F.2d 142, 150 (2d Cir. 1993).

In her Third Amended Complaint, plaintiff alleges that Ameritrade breached its contractual obligations to route her options orders to multiple markets and to execute them at the quoted price, the "best" price, or with the best execution. She bases her contract claim on Ameritrade's Fiscal Form 10-K, the Frequently Asked Questions ("FAQ") page of Ameritrade's website, and the 1999 and 2002 Terms and Conditions*fn2 of her customer agreement. None of those sources imposes those duties on Ameritrade.

1.

Plaintiff alleges that Ameritrade had the duty to distribute her orders to multiple market centers. See Third Am. Cmplt. ¶ 35 ("when the customer 'clicks' on the represented price . . . the transaction would be distributed to multiple market centers and executed"); ¶ 54 ("Ameritrade's agreement called for Plaintiff's order to be distributed to multiple market centers"); ¶ 59 ("the order should have been distributed to multiple market centers for execution upon presentment"); ¶ 65 ("Under the terms of Gurfein's contract with Ameritrade, that limit order and subsequent limit orders should have been distributed to multiple market centers and executed"); ¶ 86 ("Defendant breached its contract with Plaintiff and members of the Class by failing to distribute market and limit orders to multiple market centers").

(a)

The 2002 Terms and Conditions did not impose an obligation on Ameritrade to route plaintiff's orders to multiple market centers. Rather, they stated that "Stock and option orders are routed via an electronic matrix to an exchange, listed, Nasdaq or over-the-counter agent, electronic communications network or other market participant . . ." 2002 Terms and Conditions ¶ 91 (emphasis added). The Ameritrade Trading Account Handbook, referred to in the 2002 Terms and Conditions, made clear that orders would be routed to only one market. See Defendant's March 9, 2007 Memorandum ...

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